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1991 DIGILAW 248 (KAR)

Widia (India) Ltd. v. Commissioner of Income-tax

1991-04-04

K.SHIVASHANKAR BHAT, R.RAMAKRISHNA

body1991
JUDGMENT K. Shvashankar Bhat, J.—Under the provisions of the Income Tax Act, 1961, the following question has been referred for our consideration : "Whether, on the facts and circumstances of the case, the deposits made with the IDBI do not tantamount to payment of Income Tax and, therefore, are not deductible for the purpose of computing the chargeable profits ?" 2. The assessment year is 1977-78. The assessee, instead of paying the surcharge on Income Tax under the provisions of the Companies (Profit) Surtax Act, 1964 ("the Act" for short), deposited the equivalent amount with prepared under the provision of the Finance Act, 1976. The assessee required this deposit to be treated as payment of surcharge for the purpose of computing the chargeable profits under the provisions of the Surtax Act. The Income Tax Officer allowed the claim of the assessee but the Commissioner of Income Tax revised this order the Appellate Tribunal has affirmed the order of the Commissioner. The Appellate Tribunal followed the decision of its Ahmedabad Bench which is reported in Apara Textile traders Ltd. Vs. Surtax Officer (1982 (2) ITD 600 (SB)). Hence, this reference at the instance of the assessee. 3. The question arises because of certain provisions of the Finance Act, 1976, read with a scheme framed thereunder. As per the second proviso to section 2(6) of the Finance Act, 1976, an assessee, being a company, may in lieu of payment of surcharge on Income Tax at the rate specified in Para E of Part III of the First Schedule to the Act, make a deposit under the scheme framed under sub-section (8) thereof. To effectuate this proviso read with sub-section (8) of section 2, a scheme was framed. The scheme provides for the deposit of any amount with the Industrial Development Bank of India in lieu of payment of surcharge. As per this scheme, the amount deposited with the Industrial Development Bank of India could be refunded after a few years to the assessee and interest was payable to the assessee on the deposit. According to Sri G. Sarangan, learned counsel for the assessee, the deposit with the Industrial Development Bank of India is in lieu of the payment of surcharge, which means the said deposit qualitatively is the same as payment of the tax. According to Sri G. Sarangan, learned counsel for the assessee, the deposit with the Industrial Development Bank of India is in lieu of the payment of surcharge, which means the said deposit qualitatively is the same as payment of the tax. Learned counsel contended that an assessee discharged the liability to pay the surcharge on Income Tax either by making the payment directly to the Revenue or by making the deposit as provided in the scheme. 4. Learned counsel for the Revenue, however, contended that the deposit with the Industrial Development Bank of India cannot be equated to the payment of tax because the tax is appropriated by the State for its purposes and forms part of its funds, while the deposit with the Industrial Development Bank of India is repayable to the assessee after five years and the said deposit carries interest at the rate of 6% per annum. The proviso to section 2(6) of the Finance Act, 1976, referred to above, gives an option to the assessee either to pay the surcharge or make the deposit. It was contended by learned counsel for the Revenue that the term "in lieu thereof" does not convey the meaning of being equivalent to, but creates an option in the assessee either to make the payment or to make the deposit. The liability to pay the tax is taken away by the exercise of the option in depositing the said amount. 5. The dictionary meaning of the term "in lieu of" is "in place of"; "instead". That is to say, in the context of the Finance Act, 1976, the assessee, instead of paying the surtax, may deposit the amount with the Industrial Development Bank of India, and on such deposit being made, the tax ceases to be payable. In this connection, it is necessary to refer to the provisions of the Surtax Act. The question before us arose in connection with the computation of chargeable profits under the said Act. Section 2(5) of the Surtax Act defines the term "chargeable profits". this is to be computed in accordance with the First Schedule to the said Act. Rule 1 of the Schedule provides for exclusion of certain items from the total income which is the basis for computing the chargeable profits. From this figure, after exclusion, further amounts are to be reduced as per rule 2 thereof. this is to be computed in accordance with the First Schedule to the said Act. Rule 1 of the Schedule provides for exclusion of certain items from the total income which is the basis for computing the chargeable profits. From this figure, after exclusion, further amounts are to be reduced as per rule 2 thereof. Under rule 2(1), the amount of Income Tax payable by the company in respect of its total income is to be deducted from the total income arrived at after applying rule 2 of the Schedule. the contention of the assessee now is that surcharge on Income Tax is also Income Tax (which is not disputed) and this surcharge is payable by the company and, therefore, it should go as a reduction under rule 2 of the Schedule. The Appellate Tribunal has taken the view that the deposit with the Industrial Development Bank of India is not the same as payment of the tax, which is one aspect. Another facet of interpretation is to understand the word "payable" in rule 2 in the context of the second proviso to section 2(6) of the Finance Act. The said proviso states that, in lieu of payment of surcharge... deposit may be made under the scheme. In other words, instead of the tax being paid, the amount could be deposit results in removing the liability to make the payment. In other words, on the deposit being made, the tax ceases to be "payable". The language of rule 2 of the First Schedule to the Surtax Act also requires that the tax "payable" by the company is to be reduced from the total income. If the tax is not payable, then the said amount cannot go in reduction of the total income. The payability of the tax is the basis to attract rule 2(1) of the said Schedule. The making of the deposit by the assessee with the Industrial Development Bank of India removes the liability to pay the tax, i.e., the tax ceases to be payable. If so, there is no scope to apply rule 2 of the said Schedule. Therefore, the question referred to us will have to be answered necessarily in the affirmative and against the assessee. Reference is answered accordingly. If so, there is no scope to apply rule 2 of the said Schedule. Therefore, the question referred to us will have to be answered necessarily in the affirmative and against the assessee. Reference is answered accordingly. That is to say, the deposits made with the Industrial Development Bank of India do not amount to payment of Income Tax and, therefore, are not deductible for the purpose of computing the chargeable profits.